All Forum Posts by: Axel Meierhoefer

@Jana Crum Maybe I am misunderstanding what you mean by AirBnB arbitrage, but to @Dave Stokley point, if I want to invest in Phoenix or Scottsdale (which I might like) and I live far away (which I do) I would like an STR partner to do all the STR-work, for let's say 20% or maybe 25% of the gross rent.

I would want for the person to be local and have some experience in renting STR at least her own place, ideally also including a few rental/investment properties. I would also expect a clearly defined system that is used for the STR work.

As an investor, I can see how that would be mutually beneficial if done and organized well.

@Amy Raye Rogers Congrats on closing these deals last year. I am a huge fan of buying properties that are turnkey. That way I am not even considering to account the improvements that lead to a point where you can lease the properties directly in the annual performance calculation.

I would look at it this way:

Purchase price = X

Renovation cost = Y

if done well, appraisal after reno is more than X+Y.

Refi property to cover costs of Y and use any equity gained to buy the next property for X(New)

Measure performance based on rental income, cash invested, expenses, and any reserves.

For my case (or yours) determine the reserve size for a reasonable risk for costs in vacancy, maintenance, and CAPEX and put that amount into an account. In my case $30K.

After that is use lease income - property management - PITI = cash flow x12 for an annual total

Naturally everybody can develop their own plan, but this has worked for me and if we need to use any reserves I spread them over all properties for the year and get the details for each property from PM.

@John Clark I stay out of your difference of opinion with Joe V but like to make you and anybody on this thread again aware that money in the bank or your bank account is not your money. Joe V. does not have to state that in the context of this post. Any money you put in a bank account belongs to the bank and when you read the fine print of your account opening agreement, you are lending that money to the bank. Often these day's you don't even get interest and pay fees for transactions, the bank is allowed to determine how much of your funds they deem reasonable to give to you on a daily or monthly basis. If they go bankrupt you have to get in line with all the other creditors to get pennies on the dollar back. Most people don't realize that they don't own the money they put in what they think is "their bank account and their money". Just saying...

@John Thompson I agree that the distance will be too far to manage it yourself if you were to rent it. You probably ned to assume about 10% of the rent for management. That's what I pay in the Dayton area. If your cash flow calculations are correct, that would probably eat most or all of it. 

I am a long-term buy-and-hold investor and never bought my Dayton area properties for appreciation (even though there was a nice lift the last few years). Normally I always recommend keeping  properties you own but in this case, assuming all the numbers are correct and you seemingly want to start your investment journey with some owner property management I would agree that taking the gains from the sale, which will be tax-free and apply them to an investment property in Milwaukee so you can get experience managing it.

Feel free to PM me if you like to discuss my experience with Dayton rentals.

@Fahren F. As is often the case the issue you want to resolve first is "Purpose".

You said you like to have the LLC for asset protection. To do that you would want to have what's called "A Series LLC Child" for each property you buy. Then the liability and protection is limited to just that one property in that particular "child LLC" and that's all you could ever lose.

I disagree with @Bruce Woodruff that the corporate veil can be breached easily. That very much depended on the state the LLC is registered in. IN CA it's very easy, next door in NV its almost impossible.

That put aside, the purpose could be different, as in my case. I created the LLC to run my investments like a business. I call this an "Operations LLC". It is in place to have all operations go through it. The rents come into it, the mortgages, insurance, property taxes, etc. are paid out of it. Any accumulation of cash flow is used for more investments. My Va's to help with operations are paid from the revenue that's generated. I can even hire myself into that LLC as an employee.

All of these transactions and activities lead to a tax return that si independent (initially) of your personal tax situation. If you are creating an S-Corp LLC, the losses or gains from this operations LLC flow through to your personal taxes. It's a very clean setup.

If you decide to create a "Series LLC structure" your operations LLC would be what's called "The mother" and each of your properties would be held in the "child LLC's". The depreciation, etc. that impact taxes for each property will roll up to the mother, so you only have one tax return.

I know this sounds complicated and I am neither a lawyer nor a CPA but am following this approach myself.  

Some people mentioned that it's not as easy to get financing for an LLC as personally. It's not completely true, but you can always transition the ownership of a property you initially bought in your name to one of your Child LLC's. If you want to be a "perfect person" you can even notify the lender of that transfer and show them that your rental income will cover their mortgage easily.

long story short, just having any LLC is not really the question or an easy answer.

If you can see yourself developing a portfolio of properties so you can create sufficient cash flow to live off it and no longer have to have a job, then doing it the professional way, create a business (Operations LLC) and put your assets in Child-LLC's for asset protection is the professional way to go.

Yes, you can live without all that but please be aware that in a case of a lawsuit for whatever reason, all your assets, your income, your primary residence, your car, 401K, anything of value can be used to pay for any judgment against you as the result of a lawsuit.

I recommend going the professional route from the start, not because it is legally needed if you only have one house, but because it is part of the overall investing journey.

@Will Gissendanner I did not see in your posts where you live. Are you close to the location of this property and plan to manage it yourself?

Let's say you re, I agree that you should definitely finance it and not use all-cash. If you have about $220K in cash to buy this property, you should realize that that is enough to buy properties valued in total at $1 million. That's assuming you use your $220K for down payments of 20% for investment properties with about $20K in closing costs and fees. That's why financing is so much better. You can literally get 5 x $200K properties with the money you were potentially putting on this one property.

I always 'preach' to look in detail at all the variables of a deal, similar to what is shown in the BP webinars. Check for rent levels (Rentometer), check for schools (schoolgrade.org), look for crime rates, economic development, actual property taxes for investment properties in the area, and then run all the data, assuming you get good results from your research, through the BP rental calculator.

Apply 5/5/5 for vacancy, CAPEX, and maintenance when filling in expenses in the BP calculator. With that calculator populated, you will see your cash flow, if any.

A "safe," as you called it, property is not an investment where you have negative cash flow and bet on appreciation!

You want to have an obvious answer to the question: "What is the long-term goal of my investments?"

Most people who ask me for mentoring advice want to develop a passive income portfolio so they don't have to exchange time for money (have a job) anymore and can live off their investments. That's why the property's performance is very important. I believe most important.

If you plan to live off the appreciation of a property(ies), you are betting that there will always be sufficient price increases over time so yu can tap into the appreciation when you need money to be able to live your desired life. 

A performance-oriented cash flow portfolio is performing without any care about appreciation. 

If equity is building, you can always borrow against it, i.e., using a HELOC. Still, you retain your assets and let the tenants pay off the mortgage as you cash flow more and more, initially through rent increases, and ultimately when the property is free and clear.

Looking at this investment through this lens, I think you should complete the due diligence, get clear about your long-term goals, and then proceed. If you need more details, feel free to PM.

@Chris Mcmahan I agree with many of the posters in this thread that it is strange not to know at least the general location of this property and how Hawaii would be affordable.

It had been suggested to rent the property long term. One other option could be to maintain the "hated" property as the primary residence, buy a second home/vacation residence in Hawaii and operate the "hated" primary as a short-term rental. The revenue only needs to cover the costs and for the vacation home in Hawaii a no doc loan could be used until the waiting period is over.

It might turn out that the "hated" property generates good cash flow and never really needs to be sold. Just because you don't live there permanently means you have to sell it

@Hadley Faught I agree with the other folks on this thread that HELOC can be used as you please but you should check what other options you might have available. I had a similar situation a few years ago with a new primary residence I bought. I was able to use a loan type called 203K. Here is a link for a high-level start of your research on it:

FHA 203k Loans: Your Complete Guide | Millionacres

This can help you with the financing of the renovation and what I did was had the renovated property refinanced after everything was done. I was even able to avoid mortgage insurance using this approach because there was a lot of equity in the renovated property, far exceeding what I originally paid for it + the reno-cost.

With the recent announcements of the FED in mind, you should aim to get the loan you use to finance the renovation ASAP and then finish the renovation ASAP so you can get your refi completed before interest rates start claiming later in 2022. As inflation remains at a high level the FED might be forced to act sooner than a lot of people think and you would kick yourself if you didn't take advantage of the current low-interest environment.

@Hardik Ruparel Yu made me smile. Memphis is the birthplace of REi nation. They are also in Dallas, Houston, Oklahoma city. St. Louis, etc. I am not working for them, just saying they have a large footprint.

For my own investments in Ohio I use FREG. If yu like I can introduce you.

The one other company with a great reputation that recently expanded to Alabama is REi Nation